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An introduction to Jersey investment funds

This briefing is a general introduction to the range of Jersey investment funds, both regulated and unregulated, and is not intended to provide a full summary of or

commentary on the provisions of Jersey law but to identify features likely to be of general interest. Separate briefings dealing with each type of Jersey fund are available.

Please refer to the Glossary at the end of this briefing for the definitions of various capitalized terms.

Introduction

Jersey offers a full spectrum of fund regulation, from highly regulated recognized funds which may be marketed widely to the general public to unregulated funds which fulfil certain criteria and therefore may opt out of regulation as a fund in Jersey:

The Jersey financial services regulator, the JFSC, uses its regulatory powers to protect investors and to maintain the Island's reputation. The criteria for granting approval and the manner in which the fund will be regulated largely depend on whether the fund is private or public and whether it is open or closed-ended. In particular, a light regulatory touch is applied in the case of funds created for the benefit of sophisticated or institutional investors or where the fund has a high minimum level of investment, provided that the appropriate risk warnings are included in the offer document.

Jersey-based fund service providers (other than functionaries of Recognized Funds which are regulated under the CIF Law) must be registered under the FS Law to conduct fund services business. All registered Fund Service Providers must comply with the FSB Codes although managed entities acting only in relation to expert funds or materially equivalent funds are subject only to the core principles unless they elect to follow the

FSB Codes in full. All Certified Funds (which includes Expert, Eligible Investor, Listed and Unclassified Funds) are subject to the Certified Funds Codes which apply to the activities of the fund itself.

Following the implementation of the AIFMD in July 2013, new regulations and codes apply in Jersey to AIFMs actively marketing funds in the EEA. Funds marketing outside the EEA are unaffected as long as they do not have an EEA AIFM.

BRIEFING

Types of fund

Recognized Funds

b. Unclassified Funds

c. Listed Funds

d. Expert Funds

e. Eligible Investor Funds

f. Private Placement Funds

Very Private Funds ( joint venture arrangements)

Unregulated Funds

Recognized Funds are collective investment funds that comply with the Recognized Funds Order. They are the most highly-regulated funds in Jersey with investors having access to a statutory compensation scheme and whose functionaries are regulated under the CIF Law (rather than the FS Law). It is possible to market Recognized Funds direct to the UK public under the Financial Services and Markets Act 2000 and to nationals of a number of other countries with corresponding legislation.

a. Recognized Funds

b. Unclassified Funds

c. Listed Funds

d. Expert Funds

e. Eligible Investor Funds

f. Private Placement Funds

Very Private Funds ( joint venture arrangements)

Unregulated Funds

Unclassified Funds are funds that are offered to more than 50 investors or are listed and do not fall within the definition of a Recognized Fund or the simplified regulatory regimes for Listed, Expert or Eligible Investor Funds. Unclassified Funds are Certified Funds and are suitable structures for public offerings. They are governed by the CIF Law and

the promoters of such funds must comply with the JFSC's promoter policy.

Unclassified Funds which are open-ended and offered to the general public must comply with the OCIF Guide. The

JFSC expects Unclassified Funds aimed at more sophisticated investors but which would not be classed as Listed, Expert

or Eligible Investor Funds to be aligned with the OCIF Guide so far as possible unless application of the OCIF Guide requirements is not feasible or is inappropriate in light of the nature of the fund and its target investors.

Unclassified Funds must have a Jersey-based manager and, for open-ended funds, a Jersey based custodian.

The prospectuses for all Unclassified Funds whether open or closed-ended and whether structured as companies, unit trusts or limited partnerships, must comply with the CFPO. If the Unclassified Funds will be marketed in the EEA, their prospectuses must also comply with the disclosure requirements of the AIF Codes.

BRIEFING

Recognized Funds

Unclassified Funds

c. Listed Funds

Expert Funds

Eligible Investor Funds

Private Placement Funds

Very Private Funds ( joint venture arrangements)

Unregulated Funds

Closed-ended corporate funds which are to be listed on a recognised stock exchange or market may take advantage of a streamlined authorisation process. The Jersey Listed Fund Guide published by the JFSC sets out the characteristics of a Listed Fund. There is no minimum investment level and no restriction on the number or type of investor.

Listed Funds are Certified Funds which must have at least two Jersey resident directors and a Jersey-based manager or administrator to monitor the fund in line with the Listed Fund Guide.

The information that must be included in a Listed Fund's offer document (including the specified form of investment warning) is set out in the Jersey Listed Fund Guide. In addition, a Listed Fund's offer document must comply with the CFPO and, if the Listed Fund will be marketed in the EEA, the disclosure requirements of the AIF Codes.

Recognized Funds

b. Unclassified Funds

c. Listed Funds

d. Expert Funds

e. Eligible Investor Funds

f. Private Placement Funds

Very Private Funds ( joint venture arrangements)

Unregulated Funds

A fast-track authorisation process is also available for the establishment of funds which target Expert Investors (as defined in the Jersey Expert Fund Guide published by the JFSC and includes institutional and sophisticated investors or any person investing at least US$100,000 (or its currency

equivalent)). An Expert Fund may be a open or closed-ended and can be offered to an unlimited number of investors (providing all such investors qualify as expert investors which they must expressly acknowledge).

Expert Funds are Certified Funds and must have at least two Jersey resident directors for the fund company, trustee (for unit trusts) or general partner (for limited partnerships). The fund company, general partner or trustee (as appropriate) must be established in Jersey and all Expert Funds must have a Jersey-based administrator, manager, or (in the case of a unit trust) trustee.

The information that must be included in an Expert Fund's offer document (including the specified form of investment warning to be acknowledged in writing by investors) is set out in the Jersey Expert Fund Guide. In addition, an Expert Fund's offer document must comply with the CFPO and, if the Expert Fund will be marketed in the EEA, the disclosure requirements of the AIF Codes.

BRIEFING

Recognized Funds

Unclassified Funds

Listed Funds

Expert Funds

e. Eligible Investor Funds

Private Placement Funds

Very Private Funds ( joint venture arrangements)

Unregulated Funds

In July 2013, the JFSC introduced a new certified fund product suitable for Eligible Investors (essentially professional or experienced investors) which can be authorised on a fast- track basis provided it fulfils the criteria of the Jersey Eligible Investor Fund Guide published by the JFSC.

Eligible Investor Funds are alternative investment funds as defined by the AIF Regulations and they are also Certified Funds. The fund company, general partner or trustee (as appropriate) must be established in Jersey and have at least two Jersey resident directors.

The information that must be included in an Eligible Investor Fund's offer document (including the specified form of investment warning) is set out in the Jersey Eligible Investor Fund Guide. An Eligible Investor Fund's offer document is not required to comply with the CFPO but must comply with the disclosure requirements of the AIF Codes.

Recognized Funds

Unclassified Funds

Listed Funds

Expert Funds

Eligible Investor Funds

f. Private Placement Funds

Very Private Funds ( joint venture arrangements)

Unregulated Funds

Since January 2012 a streamlined regulatory authorisation process for the establishment of privately-offered closed- ended funds has been available. In order to take advantage of the fast-track procedure, the fund must satisfy certain eligibility conditions set out in the PPF Guide, including the fund being offered to no more than 50 potential investors in Jersey or elsewhere, and each of the investors in which being a Professional or Sophisticated Investor (as defined in the PPF Guide).

The PPF Guide sets out certain management and administration requirements, such as a Jersey administrator must be appointed as the fund's Designated Service Provider (as defined in the PPF Guide) providing a registered office to the fund and carrying out promoter due diligence. PPFs are regulated under COBO and are not Certified Funds.

The information that must be included in a PPF's offer document (including the specified form of investment warning to be acknowledged in writing by investors) is also set out in the PPF Guide. If the PPF will be marketed in the EEA, its offer document must also comply with the disclosure requirements of the AIF Codes.

The pre-existing COBO-only fund regime is still available for privately-placed open-ended funds.

Recognized Funds

b. Unclassified Funds

c. Listed Funds

d. Expert Funds

e. Eligible Investor Funds

f. Private Placement Funds

g. Very Private Funds ( joint venture arrangements)

h. Unregulated Funds

An investment vehicle established for up to a maximum of 15 investors and for which there is no promotion of the

investment is subject to minimal regulation and is treated by the JFSC in a similar way to a joint venture arrangement.

If the Private Fund will be marketed in the EEA, it must have an offer document which complies with the disclosure requirements of the AIF Codes.

BRIEFING

Recognized Funds

Unclassified Funds

Listed Funds

Expert Funds

Eligible Investor Funds

Private Placement Funds

Very Private Funds ( joint venture arrangements)

h. Unregulated Funds

There are two types of Unregulated Fund:

Unregulated Eligible Investor Funds: which may be open or closed-ended and may only be offered to eligible investors which includes professional or institutional investors or investors who make a minimum initial investment of US$1,000,000 (or its currency equivalent); and

Unregulated Exchange-Traded Funds: which must be closed-ended and listed on an exchange or market approved by the JFSC.

A simple filing of a notice with the JFSC listing certain basic features and declaring that the fund qualifies as an

Unregulated Fund at the same time as the establishment of the fund vehicle is the only process required to take a fund outside the application of the CIF Law and the FS Law.

Prominent investor warnings must be included in the offer document and (in the case of Unregulated Eligible Investor Funds) acknowledged in writing by prospective investors.

Unregulated Funds cannot be marketed in the EEA.

Glossary

AIF: an alternative investment fund as defined in the AIF Regulations

AIF Codes: the Codes of Practice for Alternative Investment Funds and AIFSB issued by the JFSC

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